Rogers Communications Inc.’s top executive broke his silence Wednesday on the potential entry of U.S. telecom behemoth Verizon Communications Inc., calling on Ottawa to create a ‘level playing field’ for all players.
The comments came after Rogers reported a higher second-quarter profit of $532-million.
Following in the footsteps of rivals like Telus Corp. and BCE Inc., Rogers became the latest wireless incumbent to call on the federal government to create what it deems a “level playing” field for well-financed carriers when it comes to acquisitions of new-entrant players and participating in an upcoming auction of wireless licences for the 700 Megahertz frequency.
Chief executive officer Nadir Mohamed said Rogers “welcomes” competition, but said it would be unfair to allow a large U.S. player to acquire new-entrant carriers at “depressed” pricing, while also giving it key advantages in next January’s spectrum auction.
“What we’re absolutely against is a tilted or stacked playing field where you have a massive incumbent U.S. carrier that would be given favourable treatment and frankly better treatment than Canadian incumbents,” Mr. Mohamed told a conference call with analysts.
“We don’t see how a government policy would make sense – that the Canadian government would favour a U.S. player. Frankly, we would never be able to get the reciprocal rights that are being offered.”
Verizon, which is mulling a Canadian expansion, has made a preliminary $700-million offer for Wind Mobile and is in early-stage talks with Mobilicity – two carriers that remain off-limits to the Big Three incumbents. It is also considering whether to bid in the upcoming 700 MHz auction.
To ensure that at least four competitors will be able to buy wireless licences in each region, Ottawa plans to limit the amount of so-called “prime spectrum” that the big three incumbents can purchase in the 700 MHz auction. Specifically, Rogers, BCE and Telus are capped at one prime block, while new entrant carriers can bid on two blocks.
If Verizon bids, it would qualify as a new entrant carrier, which means there is a risk that one of the big three incumbents could be left empty handed since there are only four prime blocks.
For his part, Mr. Mohamed said all players, including Verizon, should be subject to the same cap on prime spectrum to ensure “parity.” He also argued that Verizon should be required to build out its own network infrastructure in Canada – echoing similar sentiments from Telus CEO Darren Entwistle.
“I’ve never seen how a four-player market can work in a country like Canada. I’ve never thought of it as a sustainable model,” added Mr. Mohamed, noting history has “consistently” proven that point.
“Frankly, globally, it is interesting. If anything, we’re seeing a market that is consolidating in just about every country. So, Canada by no stretch is an outlier. If anything, three players is the norm.”
Mr. Mohamed made his remarks after Rogers posted a second-quarter profit that increased to $532-million from $400-million during same period last year on mixed wireless results.
The Toronto-based company’s net profit for the three months ended June 30, 2013 amounted to 93 cents per diluted share. That compares to 75 cents for the same period last year.
Revenue, meanwhile, rose 3 per cent to $3.21-billion on a year-over-year basis.
Net income from continuing operations was $532-million or 93 cents per share versus year-ago $413-million or 77 cents per share.
On an adjusted basis, profit for the April-to-June quarter amounted to $497-million or 96 cents per diluted share versus year-ago $478-million or 91 cents.
“During the second quarter, we delivered both revenue and earnings growth while successfully leveraging our superior networks to deliver strong data growth across both our broadband cable and wireless platforms,” said Mr. Mohamed in a release.
“At the same time, we also drove further margin expansion at our wireless, cable and business solutions divisions and continued to make significant investments in our networks and service infrastructure. Despite a heightened level of regulatory activity in the Canadian wireless communications sector, we remain steadfastly focused on the execution of our strategy and the delivery of the most innovative products and reliable service to our customers.”
Rogers, which is Canada’s largest wireless carrier, said operating revenue for that key segment increased by 3 per cent on a year-over-year basis to $1.81-billion.
Net additions of “post-paid” customers – top-end mobile users who pay their bills at the end of the month as opposed to those who pre-pay for mobile service – totalled 98,000 for the second-quarter.
During the period, the company activated or upgraded 678,000 smartphones. Of that total, about 37 per cent of those devices were for new wireless subscribers. Overall, 72 per cent of Rogers postpaid customers used smartphones at the end of June.
Still, the company also reported a higher postpaid churn rate for the second-quarter – a measure that reflects how many of those lucrative customers leave the company. Post-paid monthly churn increased to 1.17 per cent from 1.15 per cent during the second-quarter of 2012.
Average revenue per user (ARPU), a key metric that reflects the average consumer bill, for post-paid users fell by $1.10 to $67.36 Blended ARPU, meanwhile, increased by 20 cents to $59.30 as higher data revenues helped offset declines in voice usage.
The carrier’s wireless adjusted operating profit margin also increased to 49.2 per cent as wireless data revenue improved by 18 per cent to $764-million.
“The sequential deceleration in wireless data revenue and ARPU growth rates from the first quarter reflects, in part, a combination of the impact of new lower priced US and international data roaming plans that were introduced midway through the quarter, along with the impact of heightened in-quarter promotions that offer introductory months of free service,” the company said in its release.
Dvai Ghose, a telecom analyst with Canaccord Genuity, said Rogers’ postpaid wireless subscriber growth was “encouraging,” but added that its ARPU for the quarter was “disappointing.”
He noted that “at $67.36 postpaid ARPU was well below our $69.14 estimate and consensus of $69.05 and down an unexpected 1.6 per cent. This was attributed to the reprice of roaming revenue and promotions.”
As for Rogers other operating segments, revenue for its cornerstone cable division increased by 3 per cent to $870-million, media revenues rose 7 per cent to $470-million, while those for its RBS (business services) were flat at $90-million.
The company, meanwhile, offered no update on its search to replace Mr. Mohamed who is planning to retire early next year.
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